Brussels, 24th October 2002
Securities markets: Commission welcomes European Parliament approval of proposed Market Abuse Directive
The European Commission has welcomed the European Parliament's approval at second reading on 24 October of the proposed Directive on insider dealing and market manipulation (market abuse). The Commission is optimistic that the EU's Council of Ministers will be able to accept the Parliament's few amendments and move to final adoption of the Directive before the end of 2002 under the so-called co-decision procedure. This would be a major step towards integrated financial markets that investors and the public can trust. The Directive will also boost market integrity in the field of financial instruments.
Internal Market Commissioner Frits Bolkestein said "Europe has no truck with the type of greedy financial cheats who have caused so many recent problems. Scandals like Enron show clearly the need for strong rules to make markets safer, so that they remain free of abuse and free of fraud. The smooth functioning of financial markets and public confidence in them are essential for sustained economic growth and wealth creation. Abuse of markets means companies end up having to pay more for the finance they need, dissuades investors and damages the economy. We must do everything to stamp it out and to restore public confidence in our markets. This Directive will just do that. I therefore call on the Council to move quickly to final adoption."
Once adopted and implemented, the Directive will:
The proposed Directive covers both insider dealing and market manipulation. The same framework will be applied for both categories of market abuse. It will be administratively simpler and reduce the number of different rules and standards across the European Union.
The Directive will cover all financial instruments admitted to trading on at least one regulated market in the European Union, including primary markets.
The Directive will apply to all transactions concerning those instruments, whether those transactions are undertaken on regulated markets or elsewhere. This is to avoid unregulated markets, Alternative Trading Systems and others being used for abusive purposes concerning those financial instruments.
The Directive will require each Member State to designate a single administrative regulatory and supervisory authority with a common minimum set of responsibilities to tackle insider trading and market manipulation.
The Directive will not in any way handicap journalists. It guarantees the freedom of expression and the freedom of the press. Moreover, the Directive introduces several safeguards for journalists, including the possibility of self-regulation.
Journalists who in good faith receive and pass on inaccurate information will not risk any punitive measures under the Directive. The situation of journalists in connection with the dissemination of false or misleading information will be assessed by taking into account existing national legislation, unless the journalists involved in disseminating the information not only knew or ought to have known it was false but also derived advantage or profit from it.
In other words, only those who deliberately or negligently pass on false information and then profit financially or otherwise from having done so will be covered by the Directive.
The Directive also establishes transparency standards requiring that people who recommend investment strategies to the public or to distribution channels disclose their own relevant interests. In practice, this provision will in particular apply to financial analysts, and to one specific sub-category of financial journalists - those recommending investments to the public.
The European Parliament adopted a specific amendment in order to protect those financial journalists giving investment advice by requiring that rules governing their profession, including self-regulation, shall be taken into account by the Commission when establishing technical implementing measures to accompany the Directive.
The market abuse Directive is a framework Directive as foreseen under the European Council's March 2001 Stockholm Resolution on securities legislation (on the basis of a report from a group of Wise Men chaired by Alexandre Lamfalussy).